The House of Representatives’ Commission I has approved the disbursement of US$250 million this year to state-owned shipyard PT PAL to build the country’s first submarine with technical assistance from South Korea.

Commission I deputy chairman TB Hasanuddin said that the construction would start in April.

Indonesia signed a contract in 2011 with Daewoo Shipbuilding and Marine Engineering (DSME) to build three submarines worth some $1.07 billion. Two will be built in Korea while the third will be built in PT PAL’s facilities in Surabaya, East Java.

The contract requires that the work starts in Surabaya by November at the latest otherwise the contract will be void and the third one has to be built in Korea.

“We approved the plan and appointed the Finance Ministry to channel the funding to PT PAL through the State-Owned Enterprise Ministry as bridging finance,” Hasanuddin said in a coordination meeting with several ministries, the Navy and the Army on Monday afternoon.

PT PAL needs the additional capital not only to improve its financial position but also to acquire specialized equipment to build submarines. The company has the capability to build surface ships but not submarines.

Deputy Finance Minister Bambang Brodjonegoro said the funds would be injected as state capital (PMN) over three years.

He said the government would disburse $180 million this year consisting of $30 million for consultation costs and $150 million for infrastructure. The remaining $70 million is for personnel.

Defense Minister Purnomo Yusgiantoro said that that the PMN would have value-added benefits for the local defense industry, including the ability to meet the need for 12 submarines by the Navy to ensure adequate defense.

Purnomo added that the South Korean technical assistance had begun in 2013, with the sending of Indonesian engineers to that country to learn the techniques of submarine manufacturing.

“The third one will be constructed by 200 Indonesian engineers and under the supervision of DSME,” he said.

“There will be a transfer of technology in this project.”

Previously, Navy chief of staff Adm. Marsetio said that Indonesia currently had two German-made submarines, KRI Cakra and KRI Nenggala, which were built in the 1980s. They will be decommissioned in 2020. (gda/nvn)"

"...The work on [Submarine 3] will start in 2015, it is slated for completion in 2018 [probably by 2020, not "2018"]....Despite the order of three submarines from Korea, [Defense Industry Policy Committee (KKIP)]implementation team head, Adm. (ret) Sumardjono said that Defense Minister Purnomo Yusgiantoro had also set a policy to procure Kilo-class submarines from Russia in motion.

“This is a stop-gap measure as we need 12 submarines to safeguard our waters,” he said.”

FURTHER COMMENT

In terms of economies-of-scale its logical that if/when PT PAL and DSME build a Chang Bogo (Submarine 3) in Surabaya that this would be the beginning of a production run of additional Indonesia built Chang Bogos. But Indonesia appears to be encouraging uncertainty through also negotiating with Russia for new or used Kilos.

In a confusing way Indonesia appears to be seeking better price, credit and commission deals from South Korea (the logical choice for Submarines 4 to 12) and from Russia (perhaps the less likely choice for Submarines 4 to 12).

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Submarine Matters

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